Informal sector to pay tax

Plans are underway to make the informal sector pay tax and comply with labour laws, a senior government official has revealed.

The informal sector contributes around 19,5 percent  of  gross domestic product valued at $1,73 billion, with 3,7 million people involved.
The informal sector contributes around 19,5 percent of gross domestic product valued at $1,73 billion, with 3,7 million people involved.

Speaking during a recent International Labour Organisation stakeholders’ meeting in Mutare, the Deputy Minister of Labour and Social Welfare, Tongai Muzenda, said programmes were in place to train labour inspectors who would ensure that the informal sector paid taxes.

The meeting was held under the theme, “Building modern and effective labour administration and labour inspection systems in Zimbabwe”. The informal sector, which comprises hundreds of thousands of registered and unregistered business projects and provides a livelihood for millions of Zimbabweans battling the country’s economic collapse of the past 13 years, is not regulated by law. Experts say this has prejudiced government of millions of dollars in revenue through taxation.

“We want to make sure that the informal sector pays taxes because they are also earning a living using skills of trade; they are not criminals, but honest citizens who should comply with the laws of the land,” said Muzenda. In addition, informal sector players, as employers in their own right, were expected to comply with labour laws and statutes of the country, while those employed informally should also pay taxes, he said.

“The informal sector is employing many people who should also pay tax to the government,” said Muzenda.

The treasury is currently struggling to raise revenue amid widespread company closures and downsizing, tax evasion by companies, and concerns that diamond mining firms in Marange in partnership with the Zimbabwe National Army and senior Zanu (PF) officials are wilfully withholding remittances.

Informal traders, analysts and ordinary people have greeted the revelation of government’s intention to tax the informal sector with mixed reactions.

Zimbabwe Cross Border Traders Association Secretary General, Augustine Tawanda, told The Zimbabwean that his organisation had long advocated for informal sector taxation.

“However, there should be more consultations on the operational modalities. What we need is a win-win situation,” he said. Tawanda said government should introduce incentives for informal sector players who register in order to boost the numbers of those paying tax.

“The current system is complicated and skewed towards the big companies. It costs an arm and a leg for small companies and informal players to comply,” he said.

According to the Zimbabwe Statistical Agency, the informal sector contributes around 19,5 percent of Zimbabwe’s gross domestic product at a total value of $1,73 billion, with 3,7 million people involved.

Independent statistics indicate that over 80 percent of employable Zimbabweans are unemployed, but the figure focuses on the formal sector.

Economist Vince Musewe said government would face significant challenges in implementing informal sector taxation. “It is difficult because the informal sector does not keep financial records,” he said.

Zimbabwe National Chamber of Commerce economist, Kipson Gundani, concurred with Musewe and added that the cost of collecting the tax could end up higher than the revenue collected.

He said revenue collection from the informal sector should be done through presumptive tax, which is calculated using average income rather than business records and currently targets transport operators, hairdressing salon operators, small-scale miners and cottage industry operators, among others.

“What this shows is that the fiscal space is shrinking and the bulk of economic activity is in the informal sector,” Gundani said.

A Harare based informal trader, Noel Dube, said that the government should focus on job creation. “It is impossible to tax the informal sector, because it was not created by design. Government should be making sure that there are jobs and companies do not shut down,” he said.

Gerald Neshuma, another informal trader, said that government should improve economic conditions and reduce unemployment before talking of taxing the informal sector. “These guys make very little profit and introducing taxes will lead to their collapse,” he said.

A Harare resident, Despise Chipinda, said employees in the informal sector did not make enough money and it would not make sense to tax them. “Most of them make less than $250 a month so how is government going to tax that?” he said.

Analysts point out that the informal sector has played a crucial role in reducing poverty and unemployment due to its monetary power and consumptive capacity.

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